BUSINESS NEWS - Those of us that live to have a retirement need to save for this while we are earning a salary.
It is very important to understand that when saving for retirement, you are saving to pay yourself an income when you no longer earn a salary.
A good way of achieving this is to invest in a retirement annuity.
A focus on preserving the invested amount in the short term often drives an investment approach that protects rather than grows.
This is a conservative approach. Investing in this way will remove the short- term ups and downs to a large extent but could also result in much lower long-term growth.
The real risk a person saving for retirement is facing is not receiving the income they need in retirement.
This explains that by being too conservative, you may, in fact, be increasing rather than reducing risk for your retirement savings.
When it comes to retirement, there are two main types of products that provide a way of getting income from your retirement annuity savings. The first is to invest in a guaranteed annuity (also called a life annuity) that will pay you an income for your whole life.
The second is called a living annuity, where you can choose where to invest your money and participate in market performance (good and bad). Most people (about 90%) who retire choose a living annuity, rather than guaranteed annuity.
Living annuities allow control over how much income is drawn from the investment through retirement, and enables a retiree to leave the remaining capital to their heirs on their death.
The big risk this product carries is that it does not guarantee an income. When the money is finished, there is no more income.
Living annuities allow you to draw between 2.5% to 17.5% of the investment per year as income. The higher this chosen percentage, the sooner the income it can generate will decline and the erosion of the capital will ensue.
Guaranteed annuities provide a retiree with an amount of income that will be paid for life (this can also include a spouse and an annual increase).
When the retiree (and spouse where one has been added) passes away, the income will stop and no further money will be paid out.
